In 1965, Mexico enacted the Border Industrialization Program (BIP to attract foreign investment and technology while addressing Mexican joblessness along the U.S. – Mexico border. The BIP eliminated high import duties and allowed for foreign ownership of companies in Mexico, addressing the two biggest deterrents to capital investment.
Initially, the primary benefits of BIP for U.S. companies, were low-wage manufacturing and reduced tariff access to the U.S. A pre-existing U.S. tariff provision provided for reduced duty on products assembled in Mexico using U.S. components. Early on, products were assembled in Mexico but finished in the U.S., which became known as Twin Plant Industry.
By the mid-1980’s, the program was widely known as the Maquiladora Program. Manufacturing in Mexico had evolved to the point that it began to rival oil and tourism in export revenues as plants spread south into the interior of Mexico and were no longer exclusively concentrated along the border. The Mexican government sought economic expansion through a series of legislative actions to increase incentives designed to grow both direct foreign investment and domestic industry.
A very important event occurred on December 17, 1992, when the United States, Canada and Mexico signed the North American Free Trade Agreement (NAFTA). NAFTA took effect on January 1, 1994, followed by the U.S./Mexico Bilateral Tax Treaty to avoid double taxation and Mexico’s membership in the Organization for Economic Co-operation and Development (OECD), making them a global partner in trade and commerce. One of the benefits of the NAFTA was that it provided for duty free entry into the U.S. for goods produced in Mexico that qualified as NAFTA originating goods.
Manufacturing in Mexico has progressed from high volume, low tech, labor intensive assembly operations to low volume, high tech facilities staffed by skilled third generation manufacturing engineers, electrical engineers, mechanical engineers, and civil engineers. Maquiladoras serve a wide-range of international industries, including aerospace, automotive, electronic, medical, metal processing, plastic molding and many others.
